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Tag Archives: Conventional Annuities

Financial planning during old age is becoming increasingly important as we live for longer and as the cost of living goes on rising. One of the most important aspects of retirement can be the prospect of the potential need for long term care. There are many ways to plan your finances in order to meet your needs, whether it is the expenses of day-to-day life, or the costs of long term care.

If you or a loved one are already receiving, or will start receiving care soon, there are ways to optimise your resources so that the costs of care do not end up exhausting your entire life savings. One effective tool to help with long term care costs is an immediate needs annuity.

An immediate needs annuity is an annuity designed for someone in imminent need of care or already receiving care. The main advantage of an immediate needs annuity and what makes it an attractive option for those looking at the prospect of meeting care costs over a long period of time, is that it continues to pay the fixed amount for as long as you need care.

Immediate needs annuities can be suitable for those who are facing impairment which makes it necessary for them to receive care. This could be either mental impairment or physical inability to perform at least one ‘Activity of Daily Living’. The ADLs are essentially markers that define the ability to live independently and include being able to wash yourself, dress yourself, feed yourself, be mobile in the house and matters pertaining to continence.

Immediate needs annuities work on the same principle as conventional annuities in that they are based on a cash lump sum, in exchange for which you get regular payments from the insurance provider. There are different providers for immediate needs annuities, and just like with any other annuity, it is advisable to shop around for the best rate.

Unlike conventional annuities, however, the payments made by an immediate needs annuity are tax free, provided they are used directly to meet recognised costs of long term care. Also, an immediate needs annuity will be underwritten individually for each case, depending on the individual circumstances. Once the payment has been made, there are no further reviews, and there is usually a 30 day notice period in case you change your mind. The nature of the health problems and life expectancy play an important role in determining the amount that is paid out. The shorter the expected term of payment, the higher the payment is likely to be.

The number of consumers looking to finance their retirement years with the help of an annuity continues to grow. Annuities provide a sense of stability and security for consumers as they age out of their working years and allow some sense of financial freedom for those who are looking to enjoy their retirement. However, consumers need to know all of the facts about annuities before they embark on an investment. These facts about annuities can be learned through an independent financial adviser or even through independent research by the consumer. Either way, it is important for consumers to get all the facts about annuities before choosing the right option for them for their retirement, similar to engaging in any other investment strategy.

There are several different types of annuities, all of which have different eligibility factors and qualifying guidelines. The facts about annuities varies between type of annuity which is why it is critical for the consumer to do as much research as possible before making any determination on how they would like to invest their money for the future and for their retirement.

Different Types of Annuities

There are several different types of annuities available for consumers, all of which have different factors and guidelines. There are enhanced annuities available for those consumers who have a documented illness that may shorten their life expectancy. This specific annuity requires documentation of the illness in order to qualify. There are also conventional annuities for those consumers who are mainly focused on having a guaranteed stream of income throughout their retirement. For those who want income for only a short period of time there are fixed term annuities available that will make payments for only a designated period of time. And for those who would like to try their shot at earning money during retirement, there are annuities that can be linked to designated investments in the financial markets. Regardless of the choice, consumers should be educated on the exact facts about annuities, and each type, before investing.

Annuity Rate Factors

Not only do consumers need to know the basic facts about annuities, but they also need to aware of how their annuity rate will be calculated. The amount that consumers can expect to receive from their annuity depends on several factors. The first of these factors is savings. Part of the annuity rate will depend on how much the consumer has managed to save in their pension pot. Secondly, where the consumer lives will impact their annuity rate. Providers can base annuity rates on the mortality rates associated with different parts of the UK. Health of the consumer will also be factored in to their annuity rate. If the consumer is in poor health not only may they qualify for an enhanced annuity but they may also receive a higher rate because the insurer assumes that they will not be making payments for as long as they would if the consumer were healthy. Lastly, the consumer’s annuity rate could be affected by the current rates offered by other annuity providers. This is basic competition in the market. If insurers need to compete for business, they will most likely keep their rates competitive to attract more business.

Consumers should know all of the facts about annuities before they decide to invest. This not only means becoming educated on what is available but also becoming educated on what factors may influence their annuity rate, and therefore, their income stream. Knowing all of the facts about annuities can only serve to help the consumer plan for their future and their plans once they retire.